Welcome to Asset Allocator, FT Specialist's newsletter for wealth managers, fund selectors and DFMs.

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Go large

Wednesday marks the first anniversary of the suspension of Woodford Equity Income, an event that’s yet to have the far-reaching consequences first predicted by some. Fund selectors, for their part, now scrutinise liquidity more than ever before. But they remain confident in their ability to get this analysis right – and, as a result, continue to take hefty positions in their funds of choice.

Indeed, the very biggest of these bets have increased in size in recent times. The average moderate portfolio’s largest holding now accounts for more than 10 per cent of total assets, according to our asset allocation database. This doesn’t mean portfolios are necessarily becoming more concentrated – other positions are spread more thinly in many cases – but it does indicate DFMs are unafraid to back their winners in a big way.

One way in which wealth managers seek safety on this front is via passives. Just over 50 per cent of these largest positions are either trackers or ETFs, the belief being that these are low-risk choices that are unlikely to blow up in buyers’ faces. Equally, model portfolios’ top slots are also home to a number of active positions. And at an average size of 9 per cent, there’s little sign that DFMs are more reticent to plug large amounts of money into their biggest active bets.

Instead, discretionaries are displaying a different kind of caution. Although UK and US equities are the most common areas in which buyers concentrate positions, stocks aren’t the only game in town. Vanilla corporate bond funds, absolute return and even gold funds also rank as the most popular choices for certain portfolios. It’s this, rather than concerns over liquidity, that’s the most obvious sign of the times in 2020.

High stakes

If retail investors have been voting with their feet in recent months, that’s only because most of them have had their feet up. Data released this morning provides further confirmation of what some eagle-eyed observers spotted in March: the sell-off prompted little in the way of buyer’s remorse among investors.

Research from Boring Money, commissioned by Vanguard, found that just 11 per cent of retail investors sold any of their investments in March, April, or May. Some 45 per cent said they’d made no changes at all - a figure that rose to a notable 95 per cent for those investing via Vanguard’s own platform.

Of those that did buy, a majority looked at either global equity trackers, or specific regional equity exposure. But there was perhaps one warning sign to be found in the data: the fifth most popular Vanguard ETF since February 1 was its All-World High Dividend Yield fund. The strategy was the only new entrant to the most-popular list over the period.

The ETF yields more than 4 per cent as it stands, and while its largest holdings have proven relatively insulated from the Covid-19 crisis thus far, the pressure on payouts isn’t over yet. Even those who’ve internalised sensible investment lessons are still reaching for yield – and changing this behaviour may prove more difficult than discouraging panic selling. 

Merge in turn

One of the biggest wealth mergers of recent times is back on track – from a financial perspective, at least. Warburg Pincus has contributed £250m to the planned merger, an investment that the companies presumably hope will help alleviate FCA concerns over the combined business’ debt pile.

If the mooted Tilney Smith & Williamson business does now complete in the second half of 2020, it will mark a rare success for a mega-M&A deal in the sector. A proposed tie-up between S&W and Rathbones, as well as an earlier abortive possibility of doing a deal with Tilney, had previously been and gone.

The latest agreement’s convoluted route to the finish line emphasises that combining large wealth managers – even if private equity clearly sees value in such combinations – is becoming easier said than done.